Court of Appeal decision examines late notifications under Home Warranty Insurance

This recent decision by the New South Wales Court of Appeal concerns a claim for defective building works under a policy of home warranty insurance (Policy). The respondent had assumed rights and liabilities from the original Policy issuer, Calliden Insurance Limited.

The appellant notified the respondent of the defects outside the period of insurance and subsequently made a claim under the Policy. The respondent denied liability on the basis of s103BB(3)(a) of the Home Building Act 1989 (NSW) (HBA), as the loss was not notified within the period of insurance. S 103BB(3)(a) relevantly provides that delayed claims can only be made if the loss was properly notified to the insurer within the period of insurance.

At trial, the appellants sought to rely on s 54 of the Insurance Contracts Act 1984 (Cth) (ICA) to cure the late notification and prevent the declinature. They argued that the effect of s 103BB was to modify the policy and that, per s 54 of the ICA, the respondent was not entitled to refuse the claim by reason only of the failure to notify the loss within the period of insurance.

The primary judge dismissed the proceedings finding that s103BB of the HBA operated outside, and was separate to, the contract of insurance. It was the HBA, and not the policy, which entitled insurers to decline and so s 54 was not enlivened.

The primary issue on appeal was whether section 54 of the ICA prevented the respondents from denying the claim. The Court of Appeal dismissed the appeal holding (Stern JA, Mitchelmore JA agreeing, White JA dissenting) that s 103BB(3) did not alter, or form part of, the Policy. Insurers’ entitlement to decline arose from statute, rather than the policy, and so did not enliven s 54 of the ICA.

The decision is a reminder that s 54 will not always operate to cure late notifications of loss by an insured, where the requirement to notify insurers of loss within the policy period is determined by statute. Generally speaking, Insurers should consider the possibility of statutory requirements that may apply independently of the policy terms to limit or exclude coverage.